For 60 years, Americans have pushed steadily into the suburbs, transforming the landscape and (until recently) leaving cities behind. But today the pendulum is swinging back toward urban living, and there are many reasons to believe this swing will continue. As it does, many low-density suburbs and McMansion subdivisions, including some that are lovely and affluent today, may become what inner cities became in the 1960s and ’70s -- slums characterized by poverty, crime, and decay.

If gasoline and heating costs continue to rise, conventional suburban living may not be much of a bargain in the future. And as more Americans, particularly affluent Americans, move into urban communities, families may find that some of the suburbs’ other big advantages -- better schools and safer communities -- have eroded. Schooling and safety are likely to improve in urban areas, as those areas continue to gentrify; they may worsen in many suburbs if the tax base -- often highly dependent on house values and new development -- deteriorates. Many of the fringe counties in the Washington, D.C., metropolitan area, for instance, are projecting big budget deficits in 2008. Only Washington itself is expecting a large surplus. Fifteen years ago, this budget situation was reversed. 

Lower rates are just a reprieve. The loans are still debt traps, wired to adjust upward explosively if and when rates rise again. As such, they still need to be modified.

Lenders knew or should have known that the subprime loans of the bubble years were unsuitable for many of the targeted borrowers. People who invested in those loans also should have known better. But they all piled in because it was profitable while it lasted. Now they are not doing enough to clean up the mess they created. And the administration is enabling their inadequacy.

Human nature is to spend everything you make. It takes discipline to save money and accumulate wealth, and most people do not have it. When house prices were rising, every homeowner suddenly faced with a dramatic increase in their yearly “income,” if they drank the Kool Aid and learned to view appreciation as income. Many, many people did what human nature would compel them to do — they took this free money and spent it.

It went on for so long, it became part of their identity. These people actually believed they were rich. The influx of free money through appreciation was considered an entitlement for homeowners; something that would go on forever.

Let me assure you, you ain't seen nothing, yet. What's important to understand is that this isn't just a mortgage or housing crisis. The financial giants that originated, packaged, rated and insured all those subprime mortgages were the same ones, run by the same executives, with the same fee incentives, using the same financial technologies and risk-management systems, who originated, packaged, rated and insured home-equity loans, commercial real estate loans, credit card loans and loans to finance corporate buyouts. The extent of those misjudgments will be revealed only once the economy has slowed, as it surely will.